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Rizzo: Indicators hint Long Island to have merry holiday shopping season

By: Commentary December 15, 2017Comments Off on Rizzo: Indicators hint Long Island to have merry holiday shopping season

The holiday shopping season is critical for the retail sector, accounting for upwards of 20 percent of annual sales. National forecasts paint a fairly rosy picture for the upcoming season. Bain & Company, a leading management consulting firm, projects annual growth of 3.5 to 3.9 percent. This is slightly better than last year’s growth of 3.5 percent, and well above the average growth rate of 2.6 percent over the past 10 years.

Low unemployment, confident consumers, and a soaring stock market all contribute to the favorable outlook. One can also anticipate a strong spending season here on Long Island, where the unemployment rate has been at or near full employment levels for many months and income levels are high relative to national averages.

But spending growth will differ substantially for brick-and-mortar retail versus Internet sales. While in-store sales are expected to grow at a fairly modest pace of about 2 percent, e-commerce sales may grow by 15 percent or more.

And growth in spending patterns may differ across socioeconomic groups. Market research indicates that spending by these groups responds to different economic factors. Wage growth is the most important factor affecting spending among low income individuals, while spending among middle persons is most affected by home values. And financial assets are the most important determinant of spending among high income groups. Given the relatively high average income levels on Long Island, home values and financial assets may be more important in determining holiday spending than wage growth. And that is good news, because both real estate prices and financial assets have outperformed wage growth in recent years.

Tempering this optimistic outlook, however, is uncertainty surrounding federal tax reform. The proposed changes, which will limit property tax and mortgage interest deductions and eliminate state and local income tax deductions, will have a chilling effect on the real estate sector and be especially harmful to states like New York and California, where property values and income taxes are relatively high. If such changes are imposed, this could have an immediate impact on consumer spending patterns on Long Island, as forward-looking consumers anticipate adverse effects on real estate (an important factor affecting spending) and potentially higher taxes.